New-issue spread and yield to maturity of loans backing LBOs by quarter

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Borrowers and sponsors, in turn, increasingly appreciated private credit’s certainty of execution, flexibility, willingness to offer PIK options and delayed-draw term loans, and bespoke terms that facilitated navigating downturns. Recently, however, the environment has shifted again: As the broadly syndicated market came roaring back in 2024, credit spreads tightened significantly, especially for larger transactions that could be refinanced in the liquid credit markets. Some 67% of LBOs financed by direct lenders carried spreads between 500 and 600 basis points. These tighter spread levels, combined with 2024’s base rate cuts, will compress overall returns.